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Tuesday, August 17, 2010


Watching the news, reading the papers and seeing our politicians in the UK, in Europe and in the US could make one feel that the excitement and impending sense of economic doom predicted by so many since the end of 2007, 2008, last year and this year, was over. That the world had moved almost effortlessly from sub-prime crisis, to credit crunch to ‘lets have lunch’ without anyone getting hurt, give or take the odd Greek bank worker and the occasional British Prime Minister voted out of office.

The stock markets have lurched, inched, spurted and crawled inexorably upwards in recent months and commentators and the media instead of using scary words like crash, depression, the Thirties, mass unemployment, social breakdown, collapse, credit crunch are now soothing us with words like; employment, new jobs, low interest rates, controlled cutbacks, bank lending, work force, skills, cohesion and of course everyone's current fave, coalition. Of course there are still a few yobs out there on the fringes swearing and shouting expletives like; double-dip, recession, deflation, inflation, pensions, baby-boomers, pensions, rising unemployment and, lest we forget, Quantitative Easing. But generally the world is calm. Or is it?

The world’s decision to use a Keynesian approach to solving its economic woes has temporarily calmed things, but the stimulus has been at a massive cost, particularly in the US where the home of capitalism has shown itself to be weak in the face of crisis, preferring the soft option, high taxes, Healthcare Reform, and delaying hard choices for the future. Yet that future could only be months away. Already the effects of the first stimulus are waning, consumer spending is slowing again almost before it started rising, house prices are still falling, new house building can barely get it together to erect a flag-pole let alone a new house and meanwhile evermore foreclosures beckon as debt carries all before it. Yet the Federal Reserve and the Obama administration’s only answer is another, bigger, stimulus package, more Quantitative Easing and ever more spending. It’s like having maxed-out all your credit cards, mortgaged and remortgaged the house and borrowed everything you can from the bank and your friends, yet you still believe if you can just borrow more it’ll be alright.

The effects of the first stimulus are fading because it didn’t create anything meaningful and props up businesses that should close. More money will just prop them up longer and create more meaningless jobs and when its removed or its effects wane then the failing businesses and McJobs will go to anyway. Better to get the pain over and build anew than risking a bigger collapse and hyper inflation in the months and years ahead. Stimuluses only work if there’s something to stimulate, if the patient is dying, then sometimes its kinder to let him die..

In the UK too, talk of cuts are beginning to be talked down and the threat of big cuts to social services moderated. The UK though will have to wait until October this year to find out exactly what is to be cut so it would be churlish to harp on and heap criticism on the Breakback Coalition before they have had a chance to show their true colours. I suspect though that given their current moniker that they will be multi-coloured as they try to be all things to all men. In which case they’ll please no one and disappoint all.

The US and potentially the rest of the West could be heading towards a double-dip recession or, in reality in the US, a full-blown, no-nonsense Depression, where nature will do what the governments of Bush, Obama and the Federal Reserve have failed to do and that is to burn away the rubbish so that a new economy and new businesses can rise from the ashes. The only genuine alternative is the half way measure of hacking away at the economic mess through cuts, but it remains to be seen if the UK coalition government has what it takes? If we have then we may avoid America’s fate, if not we to may see the dark clouds of Depression before too long.

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